Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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The lowdown...

  • Car insurance policies are paid in advance, meaning you have to pay before you receive coverage
  • Depending on your policy, you can pay a month, a quarter, six months, or even a year in advance
  • The insurance company might require a deposit if it’s your first time buying car insurance or you have credit issues
  • If you cancel your policy before the term for which you’ve paid ends, the company owes you a refund (though cancellation fees may apply)
  • Comparing several policies and reviewing your coverage ensures you always get the best deal on car insurance

Car insurance companies make you pay for your policy upfront. They aren’t like cell phone companies, many of which bill you at the end of each service month.

You have to pay for your policy in advance because the insurance company wants you to have some skin in the game. They also want to have a pool of money to draw from in case you have an accident or file a claim.

The good news is, you have many payment options to choose from when shopping for car insurance:

  • six months
  • a year up front
  • shorter intervals, such as monthly

It’s a good idea to shop around and compare several auto insurance policies. You can compare not only coverage levels and premium costs but also billing terms. You can then pick the policy that suits you best. Enter your zip code above to begin!

Auto Insurance Payment Options


Car insurance companies offer many options to pay your bill. You can even get discounts for choosing certain payment types. Insurance companies like for you to choose options that give them the best chance of getting their money.

For this reason, you can often save money by paying up front or agreeing to have your premiums auto-deducted from your bank account.

Here are the most common auto insurance payment options:

  • Full pay – this is where you pay the entire cost of your policy up front. Most policies cover six-month terms, though some last a full year. Insurance companies love full-pay customers because they get all their money up front. Consequently, most offer big discounts for choosing this payment option.
  • Quarterly pay – this is a good option for customers who want a discount for paying in advance but don’t wish to pay for six months or longer up front. You pay every three months. Insurance companies still prefer this to paying month to month.
  • Automatic withdrawal – this is where you pay monthly, but the insurance company automatically deducts your payment from your bank account via electronic funds transfer (EFT). Many insurance companies offer discounts for paying via EFT.
  • Monthly pay – with this option, you pay in advance each month but not via auto-pay. It’s your responsibility to pay your bill via check or online payment. Because monthly pay poses the biggest risk of the insurance company not getting its money, they offer no discounts for paying this way.

Before choosing a payment option, it’s a good idea to weigh all discounts available versus cash flow needs. The savings for paying a year in advance might be substantial.

If you’re low on cash and shelling out a year’s worth of car insurance premiums puts you in a bind, the discount isn’t worth it.

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Auto Insurance Deposits

Even if you choose the monthly pay or automatic withdrawal option, you might have to pay more in the beginning. Auto insurance companies sometimes require a deposit to start your policy.

Depending on the circumstances, your deposit might be the equivalent of three months, six months, or even a year of payments.

The company might require you to pay a deposit for several reasons. The most common reasons for deposits are that you’re a first-time auto insurance buyer, you have bad or limited credit, or your auto insurance has lapsed in the past.

First-time Buyer

Auto insurance companies tend to classify first-time customers as high risk. For one thing, if it’s your first time buying auto insurance, that probably means you’re a young and inexperienced driver.

Either that or you’ve been driving for a long time without insurance. Either way, the insurance company is going to perceive you as risky.

One way insurance companies mitigate risk is by charging a deposit. They want to know that if you have an accident a week into your policy, they won’t have to shell out money on your behalf despite having gotten virtually nothing from you.

Bad or Limited Credit

When you apply for auto insurance, the company will probably run your credit. You might have a deposit if your credit report shows a limited history or a pattern of not paying bills on time. Both scenarios represent a risk to the insurance company.

If they feel there’s an elevated risk of you not paying your bill on time each month, they’ll charge an up-front deposit to give them a cushion.

Previous Lapses

A lapse in auto insurance means a gap in your coverage history. This lapse also puts you in a higher risk class compared to someone who’s had continuous coverage for their entire driving history.

If you apply for coverage with a new company and, when reviewing your history, they see your coverage has lapsed at some point, they might demand a deposit.

Auto Insurance Refunds


What if you pay for six months or a year up front but then want to cancel in the middle of your term? For example, suppose you move to a city where you don’t need a car, such as San Francisco or Manhattan.

An understandable fear with paying up front is that the money is gone for good.

The good news is, car insurance companies owe you a refund when you cancel coverage for which you’ve paid in advance.

You’ll get back a prorated amount of what you paid up front. Let’s pretend the policy cost $100 per month, and you paid for six months up front, or $600. Then you cancel three months in because you’re moving to New York City.

The insurance company owes you for the three months you didn’t use, or $300.

One caveat is that the insurance company is allowed to charge a cancellation fee in this scenario. You’ll want to read the fine print before buying a policy to see how much this is. The cancellation fee gets deducted from your refund after you cancel.

Getting the Best Coverage

Regardless of how you choose to pay your bill, the important thing is making sure that you have the best car insurance for your needs. Moreover, you want to be sure you’re getting the best deal and paying the lowest price for the coverage you have.

You can be sure you’re always getting the best deal on auto insurance by doing two things: comparing at least three policies before choosing one and reviewing your coverage every six months.

Comparison Shopping

The first car insurance quote you receive isn’t always the best one. But many drivers are in such a hurry to get coverage that they only apply to one company. It only takes a little bit of time to solicit quotes from different companies. And you might save a fortune by doing so.

You should make your goal to review at least three quotes before making a decision on car insurance. Comparing four policies side by side is even better. By going with the first quote you receive, you risk missing out on a better deal.

Reviewing Your Coverage

The second way to ensure you always have the best coverage is to review your policy every six months. It’s a mistake to let your policy renew without researching and seeing if a better deal exists. Your needs change over time.

Insurance companies change over time. It could be that you desire the same coverage, but a competitor of your current company now offers it at a much lower cost.

You have many options for paying your auto insurance bill. But no matter what billing method you choose, you always pay for car insurance in advance.

Compare auto insurance quotes today to make sure you’re not overpaying for the coverage you need! Use our free rate comparison tool to get started.